One of the problems with using charts is that you can end up seeing patterns all over the place, even when they are spurious. The patterns I have suggested on the following two charts could well be false. But the macro economic situation, the risks of sovereign default, and the consequential risks of Lehman v.2.0 where the banking system freezes up again, all suggest that the bearish case has to be considered.

Going loco

Here are some more charts from ibankcoin that Shaza sent in so go to the link below.Funny that I just mentioned Milton from the Devil's Advocate and he leadswith a picture from that movie.

Brought to us by who else? The grand and wonderful Shaza. Pay no attention to the man behind the curtain.

May 28, 2010

US Treasury Secretary Timothy Geithner said on Thursday Europe should follow China's lead and boost growth since US consumers can no longer support the global economy alone.

Geithner also said ahead of a summit of the G20 group of leading economies in Canada in late June that the United States and Europe were in "broad agreement" over the need to put into place tighter lending rules for banks.

"If the world is going to grow at its potential then we are going to have a more balanced pattern of growth globally," Geithner said after talks in Germany, Europe's biggest economy.

"In the United States we are trying to make sure that growth ... comes with more savings, more private investment. US consumers are going to be less of a source of demand for the world in the future."

He pointedly drew the contrast between Europe and China.

"You can see China recognising that imperative and putting in place a very strong program of reforms to make sure that growth is coming more from domestic demand ... Already consumption is growing much more rapidly.

"The broad challenge of making sure that global growth in the future is more balanced and more sustainable is important and something leaders all agreed and committed to."

But Geithner, who held talks with his German counterpart Wolfgang Schaeuble, sounded a conciliatory note after criticism that austerity cuts by European governments to reduce deficits were jeopardising global growth.

"We all understand and we all agree that part of global recovery, part of making sure our economies are growing ... is to commit to clear objectives for reducing our fiscal positions to sustainable levels over the medium term," Geithner said.

"That is absolutely essential, we all agree on that," he said.

"We are going to get there at somewhat different paces, the magnitude of adjustment will differ, as we all come to this from different positions, with different underlying growth rates, different overall debt burdens."

Alongside Greece, Portugal and Spain -- all of whom have seen their borrowing costs rise sharply in recent months as investors fret over their solvency -- other EU members like Italy and Britain are slashing spending.

Germany is also set to follow suit, while France also wants to tighten its belt.

Geithner met Jean-Claude Trichet, president of the European Central Bank in Frankfurt late Wednesday and Bundesbank head Axel Weber on Thursday. On Wednesday he held talks in London with George Osborne, Britain's new finance minister.

The flurry of meetings is in preparation for a get-together of G20 finance ministers and central bank chiefs in Busan, South Korea on June 4-5 and the leaders' summit in Toronto on June 26-27.

The main aim is to agree on tighter and better coordinated financial regulation in the wake of the financial crisis, with the focus on a possible levy on banks, tougher capital requirements for lenders and improved transparency on financial products.

Geither said that preparations were proceeding well, and that the world was "in a very good position to put in place a much better system than we had going into this crisis."

But he added that some countries had "slightly different approaches" and that there remained some areas where further talks were needed.

"I don't think we will know yet what separates us until we get to the next stage of discussions... I think we all agree we want to have more conservative restraints on capital and leverage," he said.

"We want to design them carefully in a way that makes the system more stable in the future but doesn't create a risk of financial headwinds to the recovery we are seeing happening."

A couple of days ago in Japan, Ben Bernanke said that the benefits of low interest rate policies that politicians want “are not sustainable and will soon evaporate, leaving behind inflationary pressures that worsen the economy’s long-term prospects…...thus political interference in monetary policy can generate undesirable boom-bust cycles that ultimately lead to both a less stable economy and higher inflation.”

[pause inserted so you have time to pick your jaw up off the floor]

We are now in the midst of one of the biggest boom-busts in history, all under the Fed’s watch, caused by its multi-decade low interest rate policy among other things, yet that is the scenario he says government oversight would cause! So what’s really going on here beneath Ben’s Harvard veneer?

He is trying to scare us with a fabricated boogie man—the idea that your elected leaders might do in some imaginary future what the Fed has already done in the unimaginable present. He wants you to be scared of this republic’s legislature reclaiming some power back from the financial empire that runs the global corporate system, and the US government from behind closed doors (article: Wall Street Empire). In other words, he wants you to continue submitting to financial dictatorship rather than rediscovering the principles of freedom, distributed power, and effective government. Will you choose submission or discovery? As more and more people are realizing, we are now in one of the most critical moments “in the course of human events.”

We have seen this moment before, especially from Hollywood. It is the WALL-E moment when the captain of the starship Axiom (our elected leaders) finally wrestles power back from Auto (the Fed cartel on Wall Street) and restores life by saving humanity from its TV programming (our media). It is the Gladiator moment when General Maximus wakes up to the imperial enemy and commits himself to restoring the republic. It is the Star Wars moment when Darth Vader chooses life for his son and the republic by throwing the emperor to his death. Which will you choose? Will real life turn out as well as fiction? Or will Ben’s scare tactics keep you in fear?

The Ben Bernanke Survey

I’m curious for your opinion about why Ben is doing this. Reply in the comments below with your answer to this multiple choice question: Who is Ben Bernanke?

Honest – he actually believes what he says. He’s still a Harvard kid getting gold stars on his homework as he repeats the fraudulent load of crap known as neoclassical economics.

Dishonest – he knows he’s just protecting the powers behind the Fed system and furthering their global restructuring plan by threatening the politicians with more boom-busts if they try to serve the people.

Insane – he’s not in touch with reality.

Folks like Jim Rogers, Marc Faber, and Peter Schiff promote #1, the idea that he’s a clueless theoretician repeatedly making mistakes. No doubt there was a time when he was just a bright-eyed overachiever being pumped full of theory disconnected from reality. But these guys ignore Ben’s comments in Japan. He makes it clear that he knows exaggerated low interest rate policies cause major problems, i.e. he’s not ignorant, but he engages in them anyway! So again I ask what’s really going on?

Feel free to disagree, but #2 is my answer, which means we need to stop believing Rogers, Faber, and Schiff that he’s a pedantic bureaucrat. That’s pure spin that reinforces the idea there’s no strategic plan behind what the G20, IMF, BIS, and Fed are doing in response to the coordinated actions of Rubin, Summers, Paulson, Geithner, Greenspan, AIG, JP Morgan Chase, Goldman Sachs, etc. Those who promote #1 are suggesting that these folks, all part of the elite Council on Foreign Relations (CFR), are basically randomly screwing up a kids’ game of checkers. No chance. The fact is we are in the mist of a global chess game being played above the heads of national governments in which debt and leverage are used to restructure the world under a new global money and banking system (video: Emerging Global Empire). I suggest Bernanke’s sole purpose is to hide the real role the Federal Reserve has played in this game while also helping to keep Congress from asserting its power.

Central Banking: Pro or Con?

The media likes to claim that voicing opposition to the Fed is lower class populism. But of course the media doesn’t think. It just promotes left or right groupthink for the few corporate powers that own the media. They don’t want you thinking about the question of a central bank. If they did, we might better understand the pros and cons.

The pro is that without a central body regulating the value of currency, thousands of banks across the country would be randomly cranking credit up and down resulting in economic turmoil. True. Some of the founders understood that without a controlled currency, private banking institutions could profit massively off whipsawing the people, which is why Article 1 Section 8 of the Constitution says the government should regulate the value of the currency. But of course we know this pro doesn’t apply to the Fed structure because the most extreme periods of economic turmoil have happened since it was created.

The problem with this pro is the first con of the Fed’s form of central banking—it puts currency control in private hands. Rather than the Fed having power over the banks, its structure actually gives the primary dealer banks (mega firms like JP Morgan Chase, Goldman Sachs, and many foreign banks) significant power to tell it what to do. Entrenched powers behind these firms working together in cartel groups like the New York Fed and CFR have far more leverage than the president, i.e. an individual with no financial experience who rotates into office for a short period of time completely surrounded by bankers and their allies. The entire purpose of the Constitution and having a republic, despite its flaws, was to put power in the hands of the public vs. a concentrated private oligarchy. But the Fed system creates such an oligarchy, as many Americans now see since the crash of 2008.

Mathematical con: Basing a currency on nothing but interest-bearing debt as the Fed system does creates the need for perpetual exponential growth (video: Culture of Empire part 1). This feels like a good thing at first, but eventually the accompanying perpetual inflation becomes clear (Bernanke admitted this in Japan by also saying central banks target 2% inflation—a huge indicator economists ignore that the system is unsustainable—a stable system would target zero). The perpetually increasing debt eventually becomes shocking (look around the world). The perpetually increasing scale and velocity of the system starts causing profound harm (Part 2 and 3). Exponential systems are guaranteed to crash. The eventual reckoning with the impossibility of exponential math is not pretty, and we are now entering the reckoning phase for our system (Chris Martenson video onExponential Growth).

Economic con: Oligarchic monetary systems tend toward a 2-tiered society, money pushing rulers vs. money using servants who scramble to pay the rulers back plus interest. The ruling financial class eventually takes over the productive economy and then parasitically destroys the host upon which it lives as gambling and speculation replace savings and production as the engine of growth. Such is the power of a monetary system based on nothing but debt (Michael Hudson video).

Moral con: A debt-based monetary system enshrines usury, i.e. living off the backs of others by doing nothing but subjugating a population to systemic interest-bearing debt. So the foundation of our monetary system under the Federal Reserve is built upon immorality (article: Usury and the Coming Crash).

Philosophical con: Related to the moral and economic cons is the philosophical ideal of freedom. An oligarchic monetary system forces the great mass of the population into servitude. It effectively creates a predator/prey structure in society. In a system based purely on debt, the banking powers are able to super-inflate the system to drive up asset prices, and then deflate the system sucking value and assets up the pyramid to consolidate power. We saw this over the last 10 years. This is the biggest and brightest example of why Jefferson said “banking institutions are more dangerous than standing armies.” It’s also the best example of why the Constitution demands that government regulate the currency.

Solution

So how can we get the one pro of a central monetary authority regulating the value of the currency without any of the cons above? Do precisely what Ben says we shouldn’t do—reestablish the republic by putting currency regulation in the hands of public officials as the Constitutions says. If a country doesn’t have a sovereign currency, it doesn’t have a sovereign government. We are learning that painful lesson now as we see Greece being attacked and taken over by financial institutions. The same thing has happened to many countries in the past and it will happen in the future if governments don’t take charge. At that point everyone will know the truth—governments are held hostage by private financial interests. But more and more Americans are realizing the truth now and pushing for change.

However, the change is not as simple as ending the Fed. Without a transition plan, that would cause a disaster since it is the basis for the money supply. The key is to nationalize the Fed, and possibly its primary dealers during the transition phase, to keep them from holding us hostage with the threat of collapse. Then with honest public officials in Treasury and other agencies that don’t represent Goldman Sachs and the rest of the financial cartel—people like William Black, Brooksley Born, Janet Tavakoli, Michael Hudson, Eliot Spitzer, Harry Markopolos—it will be possible to restructure the monetary system. Other components of the solution involve the US Treasury printing sovereign US notes, state banking systems like North Dakota to restore state power, etc. (see details at Freedom’s Vision)

Just a short time ago things felt hopeless because, as Martin Luther King warned, “One of the great liabilities of history is that all too many people fail to remain awake through great periods of social change.” But the republic has heeded his call. It is awakening. Rest

Pierre Lassonde has been a tireless and visionary supporter and patron of the Institute that bears his name.

Philanthropist and talented businessman, Pierre Lassonde is recognized as one of Canada’s foremost experts in the area of mining and precious metals. In 1980, Pierre began ten years as President of the gold division of Beutel, Goodman & Company, directing its highly successful gold investment fund. Pierre co-founded Franco-Nevada Mining Corporation with Seymour Schulich in 1982 and over a 20 year period, provided shareholders with a 36% annualized rate of return. He became post-merger President of Newmont Mining Corporation in 2002 – the world’s largest gold producer. From January to November 2007, Pierre was Vice Chairman of Newmont Mining Corporation. In 2008, Pierre led a group of investors in bringing back Franco-Nevada to the public market and became its Chairman.Graduating with a Bachelor of Arts degree from Seminaire de St. Hyacinthe of the University of Montreal in 1967, he went on to study electrical engineering from Ecole Polytechnique, where he received his Bachelor of Science in 1971. He graduated with a Masters of Business Administration degree from the University of Utah in 1973 and was designated a Professional Engineer by the Association of Professional Engineers of Ontario in 1976. Mr. Lassonde earned the qualification of Chartered Financial Analyst from the University of Virginia in 1984. He has been conferred with several Honorary Doctor degrees from the University of Toronto (2001), University of Montreal (2002), University of Utah (2006) and Ryerson University (2006).In addition to his support of the Lassonde Mineral Engineering Program and the Lassonde Institute at the University of Toronto, his philanthropic activities have included the funding of academic buildings at the Ecole Polytechnique, establishing the Lassonde New Venture Development Center at the University of Utah and serving as Chairman of the Quebec National Art Museum. In 2003, Pierre was awarded membership in the Order of Canada.With over 25 years of experience in the mining and investment business, Pierre is one of Canada’s leading gold analysts and is the author of the Gold Book, The Complete Investment Guide to Precious Metals.

I’m stating the obvious, but signs of newly minted chartists are all around. Markets break major levels and continue on before violently reversing the next day. TA practioners(like me!) can start a site and in days have a forum for conveying market views. Heck, I had to sit upstairs at the Market Technicians Association 2010 Symposium because the entire lower level was jammed full of technicians young and old. A year ago, the event was free and I had room to stretch both ways.Don’t get me wrong…I’m glad people are adopting technical analysis in droves, as I believe price action is more honest than most CEOs. At 3500 or so, MTA membership is still dwarfed by the fundamentalists at CFA. But I can’t help thinking that the attraction to moving averages and support/resistance lines is partly responsible for the manic behavior of stock prices.This article from Mark Hulbert(ht @zortrades) highlights just how quickly sentiment can change. His surveys show newsletters recommending an average allocation to NASDAQ stocks of -45%(yes, minus), down from +80% two weeks ago. I’ve tracked this stat for years, and can find no instance of such a dramatic swing. I know new risks have been introduced, but was the fundamental case for stocks really that good in March and April? Throughout 2009?This is a momentum-driven economy, almost a perfect example of the reflexivity discussed by George Soros, where the action of the participants themselves creates the change they anticipate. It was that way in 2008 to the downside, in 2009 to the upside, and 2010 has been more of the same. That massive rally from the February lows? It was one giant IBD-style trade, just as easily exploited by buying calls on the Russell 2000. The peak and plunge in May? Same thing, all one trade driven by intermarket relationships.My prescription for this momentum madness? Acknowledge it. Realize that while a break of the 50 day or 200 day average may be more significant that day, much of it is driven by portfolio managers newly converted to the trend following altar. That doesn’t mean fight them, it just means expect those breaks to pick up steam as more eyes watch and react. It also means the latter portions of those moves are really weak hands, so after confirmation that the move has been reversed there will be huge amounts of regret and fear of missing the next move.Watch the 20 day MA if that’s your time frame, but why not track the 15 day and 25 day as well? If everyone is using the same indicator, it will work spectacularly for the day of impact and poorly thereafter. I like to watch the battles at the 10 Wk(50 day), because it leaves good clues as to the intentions of large buyers and sellers. But I recognize that, in this market, a .20 break of the 50 day probably becomes a $2 break that looks disastrous…at which point we get fixated on how “broken” the stock is. But like the Flash Crash, it may have just been many extra stop losses sitting just beneath(or above in case of downtrends) the popular numbers. Once the smoke has cleared, the natural flow of buyers and sellers resumes.Styles have peaks and valleys…like the 1970’s, strategies using technical analysis have become very attractive to advisors and investors seeking a way to thrive in a rangebound decade. Welcome aboard, I say…at the very least, it forces users to be aware of risk before news arrives. And transactions costs have gotten so low that it costs very little to re-enter if your original stop loss proves to be a fakeout. It’s easy to stop yourself out…what’s hard is re-entering an idea once it reasserts itself. Understanding this ahead of time is the most important tool in your kit

Here is comes again the dreaded U word Unexpectedly. I think they should toss out the book, because only when things go up is it Expected. Down it is Unexpected. So do this people who call themselves economists have a clue? IMHO they do not. Queenbee

U.K. May Consumer Confidence Drops to Five-Month Low, GfK Says

By Svenja O’Donnell

May 28 (Bloomberg) -- U.K. consumer confidence unexpectedly dropped to a five-month low in May as Britons baulked at the prospect of government spending cuts and became more pessimistic about the economic outlook, GfK NOP said.

An index of sentiment fell to minus 18 from minus 16 in April, the market researcher said in an e-mailed statement today in London. Economists had forecast that the gauge would be unchanged, according to the median of 15 estimates in a Bloomberg News survey. A measure of optimism on the economy over the next 12 months fell 8 points to minus 9.

“With considerable cuts in public spending, plus higher taxes on the way, it is hard to see the confidence index improving significantly in the near future,” Nick Moon, a managing director at GfK, said in the statement. This is “clearly not good news for the coalition government, especially with mounting speculation about double-dip recession.”

Prime Minister David Cameron on May 25 pledged to speed up measures to reduce the budget deficit, a day after his government announced 6.2 billion ($9 billion) of spending cuts this year. The Conservatives, forced to form Britain’s first coalition since World War II after May 6 elections failed to produce a clear winner, must cut the record budget gap without hurting the economy’s recovery from the recession.

A gauge of consumers’ perception of their personal finances over the next 12 months fell 5 points to minus 3 this month, the lowest in more than a year. GfK’s index of consumers’ willingness to make major purchases, such as cars and electrical goods, fell 1 point to minus 21.

Britons’ assessment of the past has improved. A measure of the general economic situation over the previous 12 months rose 2 points to minus 45, while consumers’ view of their personal finances in the period rose 1 point to minus 13.

GfK surveyed 2,002 people from April 30 to May 16. The margin of error is estimated at 2 percentage points.

And if you thought the UK was unique here is the same story about the US. Beware the U word again. QB

Consumer Spending in U.S. Stalls, Savings Increase

By Timothy R. Homan

May 28 (Bloomberg) -- Consumer spending in the U.S. unexpectedly stalled in April as Americans used growing wages to rebuild savings.

Purchases didn’t increase for the first time since September and compared with a 0.3 percent increase projected by the median forecast of economists surveyed by Bloomberg News, Commerce Department figures showed today in Washington. Incomes climbed 0.4 percent for a second month, and the savings rate rose for the first time in four months.

Rising pay may help mitigate the damage from the financial turmoil caused by the European debt crisis, sustaining the economic recovery. Profits at retailers from Target Corp. to Gap Inc. are beating estimates, and hiring is picking up, giving American households the means to boost both spending and savings in coming months.

“The consumer is going along for the ride but isn’t really leading the recovery,” said Nigel Gault, chief U.S. economist at IHS Global Insight in Lexington, Massachusetts, who projected spending would pause. “Because employment is growing, we’re starting to create some labor income and that is positive for future consumer spending.”

Stock-index futures trimmed earlier gains after the report. The contract on the Standard & Poor’s 500 Index rose 0.1 percent to 1,102.5 at 8:53 a.m. in New York. Treasury securities rose, pushing the yield on the benchmark 10-year note down to 3.32 percent from 3.36 percent late yesterday.

Gain ProjectedThe median estimate was based on 77 economists surveyed. Projections ranged from a decline of 0.1 percent to a gain of 0.6 percent.

The median estimate of economists surveyed called for a 0.4 percent advance in incomes. Wages and salaries in April rose 0.4 percent after climbing 0.3 percent in March.

The pause in April purchases followed a 0.6 percent increase the prior month, indicating an early Easter holiday may have pushed sales into March at the expense of last month.

The savings rate climbed to 3.6 percent last month, the highest level since January, from 3.1 percent in March as incomes increased and purchases cooled.

Today’s report showed inflation was little changed. The inflation gauge tied to spending patterns increased 2 percent from April 2009, the same as in the 12 months ended in March.

The Fed’s preferred price measure, which excludes food and fuel, rose 0.1 percent in April and was up 1.2 percent from a year earlier.

Adjusted for inflation, spending was also unchanged, the first time without an increase since September.

The economy grew at a 3 percent annual rate in the first quarter, after expanding at a 5.6 percent pace in the last three months of 2009, figures from the Commerce Department showed yesterday. Consumer spending accelerated to a 3.5 percent pace, from 1.6 percent in the fourth quarter of last year.

The labor market is likely to determine the pace of spending in coming months. Employers have increased payrolls in five of the past six months, culminating in a 290,000 gain in April that was the biggest gain in four years, according to figures from the Labor Department.

Employment probably increased again this month, and the unemployment rate likely fell to 9.8 percent, according to the median estimates of economists surveyed before a Labor Department report due June 4.

An attendee at the Google Developers' Conference in San Francisco. Photographer: Kim White/Bloomberg

By Douglas MacMillan - May 27, 2010

Last fall, some unusual job listings began cropping up on Google Inc.’s website. Amid the requests for programmers and engineers were postings for bond traders and portfolio analysts. By spring, tech blogs were speculating about what was going on at Google.

The answer was very un-Silicon Valley. Google started a trading floor to manage its $26.5 billion in cash and short-term investments, Bloomberg Businessweek reports in its May 31 issue. The hoard is the third-biggest cash pile among U.S. tech companies, after those at Microsoft Corp. and Cisco Systems Inc.

One of the company’s goals is to improve the returns on its money, which until now has been managed conservatively. Google doesn’t disclose its rate of return on investments or the targets it has set. Analyst Aaron Kessler of ThinkEquity LLC estimates the company’s 2010 return, including interest income and realized and unrealized gains before tax, at about 2.5 percent. That’s a higher return than some other large Internet outfits, such as Yahoo! Inc. and Amazon.com Inc., he says.

Google is using some of its money to buy back shares in the wake of its $750 million acquisition of mobile-advertising firm AdMob, which was an all-stock deal. The transaction was cleared by U.S. regulators on May 21.

Investors have been wondering what else the company intends to do with its cash. International Business Machines Corp. recently announced plans to spend $20 billion over five years on acquisitions. Hewlett-Packard Co. just bought Palm Inc. for $1.2 billion.

10 Palms

“Google could do 10 Palm kind of deals,” says Michael Yoshikami, president and chief investment strategist of YCMNet Advisors, which owns Google shares. “That would be a pretty decent use of their money.”

Beyond the AdMob buybacks, Google has said it has no plans to return cash to shareholders.

Google’s trading room opened in January. The plan is to keep the war chest growing safely and ready to be deployed should the right mergers-and-acquisitions opportunities arise. The investment team has grown to more than 30 people, up from 6 three years ago. Many of the new arrivals are former Wall Streeters who left lucrative careers at banks like Goldman Sachs Group Inc. and JPMorgan Chase & Co.

The man in charge is Brent Callinicos, Google’s 44-year-old treasurer, who joined from Microsoft in 2007, back when Google had $11 billion in cash.

“This isn’t fast money, this is patient money,” he says.

Trading Mosaic

His crew works in a recently remodeled finance building on the company’s corporate campus in Mountain View, California, complete with a rock climbing wall, massage chairs, murals of tropical sunsets and bamboo wall panels. In a second-floor space accessed by key card -- the trading room -- the Wall Street vets tap out trades at desks with six computer screens.

Craig A. Jeffery, managing partner of Atlanta-based consultant Strategic Treasurer, says the financial technology at banks and most corporate treasuries tends to be an unwieldy hodgepodge of disparate software applications.

If you’re crunching numbers in Excel, you probably have to cut and paste the results manually into your foreign-exchange analytics software. Callinicos got around the coordination problem by tapping in-house engineers to meld the various pieces of software into one dashboard for trading and managing cash.

“Callinicos built this mosaic of systems and a way of relating them together,” Jeffery says.

Trading Advantage

That woven-together technology gives Google a trading advantage: It shows the value of the company’s holdings all over the world almost in real time.

This is harder than it sounds. Jeffery says most treasuries with dozens of bank relationships in multiple countries can see the values of only 60 percent or 70 percent of their positions at any given time. Google’s systems can monitor 98 percent of its holdings in real time, Callinicos says.

“One of the toughest parts of this is extracting the right data for the right decisions at the push of a button,” says Wolfgang J. Koester, CEO of FiREapps, a maker of financial software. Callinicos “has been an industry leader on this.”

Born in South Africa, Callinicos came to the U.S. at age 16. After receiving an MBA from the University of North Carolina, he landed in Microsoft’s finance department in 1992 and became treasurer in 2000. By the time Microsoft’s cash neared $60 billion in 2004 -- the year the company paid out a one-time $32 billion dividend -- it was generating returns of more than 7 percent.

Higher Returns

After a couple years of conservative cash management at Google, Callinicos says he’s beginning to build a higher-risk, higher-return portfolio. Since last year he has pulled away from U.S. government notes and moved into corporate debt securities ($4.9 billion as of March 31, up from $695 million the year before), agency residential mortgage-backed securities ($3.3 billion, up from $60 million) and foreign government bonds ($332 million, up from zero).

Callinicos doesn’t disclose which countries Google has invested in, though he says the company’s holdings were not directly affected by this year’s financial crisis in Europe sparked by concerns over debt in Greece, Ireland, Portugal and Spain.

“We’re not in the countries that are in the headlines,” Callinicos says. A currency-hedging program that Google began in late 2007 has helped to avoid the effects of a fluctuating euro.

Google does hold $181 million in auction-rate securities -- primarily student loans -- which began to fail in the first quarter of 2008, according to company filings. In March, the company estimated that these investments declined in value by $23 million and warned that the loss would be charged against earnings if it were forced to sell the securities before they recovered in value.

Google’s portfolio also contains $3.3 billion in U.S. government agency debt, $2.2 billion in municipal securities and $2.1 billion in U.S. government notes.

Google is still building its team. Its website lists openings for a foreign government bond trader, a risk analyst and a portfolio analyst of agency mortgage-backed securities. Callinicos says he’s looking for different qualities than those that large banks are seeking.

“We’re not trying to become a Wall Street firm,” he says. “This is Google. It’s eclectic.”

Sri Lankan Rapper

He cites Ranidu Lankage, who came to Google after a full- ride scholarship at Yale and a two-year stint at Lehman Brothers. When he’s not analyzing Google’s portfolio, Lankage is a star of Sri Lankan-style rap and R&B. He landed his first record deal with Sony Corp. at age 19.

Callinicos wouldn’t comment on what he pays his staff, though Gustavo G. Dolfino, senior managing director at financial recruiting firm Accretive Solutions, says Google pays finance staffers significantly less than what they would make on Wall Street. Google has not retained Accretive Solutions.

He adds that what Google jobs lack in pay they make up for in stability. “Everybody knows that Google isn’t going anywhere.”

NEW YORK (MarketWatch) -- Albert Einstein once said that the definition of insanity is doing the same thing over and over again and expecting a different result.

We've covered numerous topics in our time together, including the cumulative imbalances in the global marketplace, the shifting social mood, the sovereign sequel to the first phase of our financial crisis and the Phantom of Deflation. Read Minyanville's "A Five Step Guide to Contagion."

That last dynamic is perhaps most daunting; between the bear market in China, uncertainty in Europe, stateside budget gaps, upward taxation and austerity measures, it would appear we're on a collision course with an inevitable destination. To that end, I will draw from three of my past columns with hopes of providing some context for our forward path.

The first article was written on June 21, 2006; I was reminded of those thoughts when I picked up The Wall Street Journal last week and saw "Inflation at 44-Year Low splashed loudly across the front page. Read Minyanville's "The Phantom of the Market."

As I wrote at the time,

"I won't pretend that all is well in the world or that the worst is behind us. I'm simply looking to shake shekels from the tree and pocket them before the Phantom returns to his rightful home.

Who is this Phantom I speak of and what does he want? For me, it's a simple yet unpleasant answer; the type of discussion that nobody wants to have until we actually see his shadow.

He is Deflation; painful, all-consuming, watershed Deflation. While the mainstream media continues to monitor inflationary pressures--and yes, this exists in some corners of the economy--this particular Phantom won't discriminate between victims. The weakness we've seen is the probability of this demon being priced into the collective mindset."

To be sure, after that column posted and following an additional 15% haircut for commodity prices, asset classes across the board enjoyed a spirited sprint higher. We know now that was the "blow off" phase of the rally, the "panic" portion of the denial-migration-panic continuum that defines all market moves; we all know what happened next.

"Let's look at both sides of the great debate. To the left is the socialization of markets, nationalization by governments and a road to hyperinflation. To the right, we have asset class deflation, risk aversion and the unwinding of the debt bubble.

If the Northern Rock nationalization is the first in series of similar steps, we could conceivably see the stateside assumption of mortgage debt by the U.S government. This would hit the dollar and spike equities, at least until interest rates rose to levels deemed attractive as an alternative investment.